To data or not to data- that is the question
Another argument against the use of financial valuation information to identify future renewal needs is the concept of materiality. Materiality is an accounting principle related to the influences on economic decisions by those who use financial statements. In financial management, materiality is often used as a basis for limiting the level of recognition, a potential root cause for low value/low risk asset types not being valued. In effect, materiality is used as a reason not to collect data for financial valuation purposes, because, from a finance management perspective, the cost of data collection may outweigh its benefits.
However, asset management functions are not constrained by the accounting concept of materiality. There are often good maintenance management reasons why data is required on low value/low risk asset types. In these circumstances, data can be used to create a more complete financial management function; whereby, the organisation would not only better understand the value of their broader asset portfolio, but may also use the financial valuation information to identify long term average renewal needs for low value/low risk asset types.
The availability of some form of renewal forecast for all asset types across an organisation’s infrastructure portfolio is a pragmatic requirement, ensuring due diligence of investment need analysis and mitigation of unplanned service interruptions. If an organisation is unwilling to invest in sophisticated predictive modelling tools for all asset types, then it will have a gap in its estimate of portfolio renewal needs unless it finds an alternative means of assessment. Where asset management considerations are used to inform the level of asset componentisation for financial valuation processes, the outputs can be used to provide a more complete picture of renewal needs across an organisation’s asset portfolio.